Mike Maloney & Jim Rogers – Is Gold Money?
The Consumer Price Index vs. Real Inflation
History of the CPI
In 1913, the US government created the Consumer Price Index as a method to track inflation by measuring the rise or fall in prices of a fixed basket of consumer goods. The CPI was a cost of goods index. Because the government accurately and honestly reported these numbers, the CPI became the standard method of measuring inflation with the general public. However, starting in 1983, the government began altering the way CPI was measured, thus severing the link between CPI and real inflation.
Changes to the CPI
The most significant alteration to the CPI was substitution. It was decided that items within a category may be substituted if a particular item saw a sharp increase or decrease in price. Once this method was adopted, the CPI became a cost of living index, instead of a cost of goods index. This may seem like semantics, but it is the critical point to understanding the difference between CPI and real inflation. Because the CPI allows for substitution of goods, the baseline has been changed, and therefore does not measure the true unit of change known as inflation. Yet the government continues to report CPI as a measure of inflation.
The Government’s Incentive to Mislead
The government has learned over time that reported inflation numbers must remain low to keep domestic consumer and foreign investor confidence high. However, inflation is a debtor’s best friend. Inflation causes the money borrowed today will be worth less when it is repaid down the line, in effect cheapening the debt. Since the US government has become the world’s largest debtor, they have a hefty incentive to create inflation. So the government wants reported inflation low, but real inflation high. Using an altered CPI to report inflation is the perfect instrument to implement this strategy.
How You Are Affected
This means real inflation is eroding away more of your investment returns than you realize. Solutions include investing more aggressively, seeking out higher returns to combat increased inflation. Investing in silver and gold can also be an effective method of hedging against a falling dollar. Regardless of the amount of risk you are comfortable with, it is important to understand the difference between reported inflation and real inflation, as it impacts your future purchasing power.
Why You Should Invest in Silver
Supply of Silver
The bullion availability of silver is continuing to decline. Nobody has discovered the specific quantity, as central governments and private companies are not fully open with their information. Nevertheless, some industry professionals believe the bullion supply over the last 60 years has collapsed over 90%, meanwhile industrial use is exploding. There’s five times less available silver for traders to purchase on the markets compared to gold. The eight highest silver mining states in the USA have all peaked in production. The only way to bring the supply and demand for silver into balance is higher prices.
The Many Uses of Silver
Silver is a unique metal due to its strength and durability, its electrical and thermal conductivity, and ability to endure extreme temperatures. Unlike gold, which main purpose is to hedge against economic uncertainty, silver is used heavily in the following ways:
Computers and TV’s
Mobile phones
DVDs
Monitors
Switches
Adhesives
NASA
Cars
Check out that list, and you don’t need to do much research to figure out the need for these devices will continue to grow. That means greater demand, and with supplies potentially peaking, higher prices will follow.
Poor Man’s Gold
Whenever I tell friends and family they need to purchase silver or gold, the first question is always “What is the price of gold?” Their responses to the answer is often comical. For way too many Americans, $1500 is a house payment or a couple of months rent. The average American has over $8000 on their credit card, and usually less than $1000 in savings. So how can the average American afford gold? The fact is they can’t, but they can afford silver. Much like the Tech Boom, I expect the average American will plow into silver once they finally awake from their fiscal slumber, pushing silver to extreme levels.
Silver is a Hedge Against Economic Collapse
I can’t tell you how sick I get of people asking me “What if you are wrong?” The price of silver has moved up as much as 1000% since I began accumulating it, so even if the fiat empire doesn’t cave in, I still made money. The alternative would be to place your belief in ETFs and people you don’t know, which doesn’t feel like the best defensive approach to me.
To read more about investing in silver, visit Silver Liberties.
